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30,000 Strong and Counting, UnitedHealth Gathers a Doctor Army

(Bloomberg) -- Disruptors are circling the health-care industry. UnitedHealth Group Inc., the biggest U.S. health insurer, has built an army of tens of thousands of physicians to fend off invaders.

Health care in the U.S. has been plunged into a high-speed reconfiguration that could redraw longstanding relationships between patients, doctors, drugmakers and insurers. Outsiders such as Amazon.com Inc. and Walmart Inc. are looking for ways to shake up the business.

For now, UnitedHealth remains the colossus astride it all. The insurance giant has spent the past decade steadily adding physicians to its ranks, fortifying itself against competing insurers as well as hospitals who are buying up physicians. Once the physician groups it bought from DaVita Inc. are fully under its wing later this year, UnitedHealth’s OptumCare unit will have one of the largest collections of doctors in the U.S.

UnitedHealth is betting that controlling many doctors can provide patients better care at a lower cost, and steer them away from expensive hospital stays. Bringing more doctors in-house provides a buffer against rivals and places an imposing moat in the path of upstarts.

“This is obviously scaring the crap out of hospitals in many markets,” said Chas Roades, chief executive officer of Gist Healthcare, a consulting firm.

Arms Race

Hospitals, in the midst of a wave of consolidation, have also been buying doctor practices. About 42 percent of physicians worked for hospitals by mid-2016, up from about 26 percent four years earlier, according to a study by Avalere Health. Researchers have found that when hospitals buy doctor groups, it can raise the cost of care.

Acquiring doctors of their own gives insurers a counterweight as hospitals bulk up. CVS Health Corp.’s $68 billion acquisition of Aetna Inc. is driven partly by a desire to provide more care in the pharmacy chain’s stores and keep customers out of the hospital.

OptumCare has about 30,000 employed and affiliated physicians, while Davita Medical Group has 17,000 physicians and other care providers. HCA Healthcare Inc., the biggest for-profit U.S. hospital system, has about 37,000 doctors, while hospital-and-insurance conglomerate Kaiser Permanente has 22,000.

“We’re in an arms race with hospital systems,” said John Gorman, who runs consulting firm Gorman Health Group and works with insurers. “The goal is to better control the means of production in their key markets.”

Conversely, many hospitals that have tried to run insurers have faltered, with systems including New York’s Northwell Health closing down coverage ventures.

UnitedHealth, which insures almost 50 million people and runs a large pharmacy-benefits manager and other businesses, says its doctors serve more than 100 other insurers, and that it has no plans to shut anyone out. The company says it has ambitions for OptumCare to reach 75 markets, from about 30 now, including in California, Florida, New York, and Texas.

“We have been slowly, steadily, methodically aligning and partnering with phenomenal medical groups who choose to join us,” said Andrew Hayek, who oversees the care delivery operation at UnitedHealth. “The shift towards value-based care and enabling medical groups to make that transition to value-based care is an important trend.”

UnitedHealth closely guards information about OptumCare. While a list of OptumCare groups is available online, the company won’t say which markets it operates in, how many doctors it employs, or how much of its business comes from UnitedHealth’s insurance customers.

Seizing Advantage

A review of publicly available plan information shows UnitedHealth is in some cases nudging insurance customers toward its doctors. New West Physicians, a group of about 120 doctors and care providers in the Denver area it bought last year, is a favored practice in a plan with limited physician options for UnitedHealth’s commercial customers. Seeing doctors in the group can come with out-of-pocket expenses that are 20 percent to 30 percent less than treatment elsewhere, for some customers.

In other locations, UnitedHealth sells Medicare Advantage plans for seniors that offer lower costs to see OptumCare doctors, such as those in the company’s WellMed group. Hayek says OptumCare groups have similar arrangements with other insurers and the goal is to have them work with more.

Adding more doctors could bolster UnitedHealth’s position as the top provider of Medicare Advantage plans, by improving quality ratings that influence how much insurers are paid by the government, said Gorman, the consultant.

There’s currently little geographic overlap between UnitedHealth’s Medicare Advantage membership and OptumCare’s practices, according to an analysis by Tory Wolff, managing director of consulting firm Recon Strategy. But streamlining care in places where the company has both doctors and insurance customers can give the company an edge even if it makes its doctors available to everyone, Wolff said.

Nevada Roots

UnitedHealth first entered the care business in a big way in 2008, when it bought Nevada insurer Sierra Health Services and its then 250-doctor Southwest Medical Associates. The company saw how much the captive medical group could improve patients’ experience while delivering care at a lower cost, Hayek said.

Over the next few years, UnitedHealth went on a nationwide shopping spree, adding thousands of doctors through at least a dozen large deals. It bought Monarch HealthCare, which manages 2,500 doctors south of Los Angeles, in 2011. The same year, it bought WellMed and its 14,000 doctor offices in Texas and Florida. In some cases it buys companies that oversee large groups of affiliated doctors, and in others it directly employs the physicians.

From there, the company continued to diversify, adding urgent-care chain MedExpress for $1.5 billion in 2015 and Surgical Care Affiliates, which runs outpatient surgery centers, for $2.3 billion last year. In December, it agreed to pay $4.9 billion for DaVita Medical Group. That deal is expected to close this year, according to DaVita.

UnitedHealth now has about 230 MedExpress urgent-care sites, more than 200 ambulatory surgery centers and surgery hospitals, and 30,000 doctors, a figure that includes physicians who are employed by Optum units, or who partner or contract with the firm.

“The smartest participants in the system are the ones who are going to be able to provide quality care at the lowest cost setting,” said Ken Marlow, an attorney who leads the health-care department at the law firm Waller Lansden Dortch & Davis LLP and works on hospital deals. “Whoever gets there first, and whoever is able to do that, I think will be the winner.”

Here’s a list of OptumCare groups based on public records and reports, and information from UnitedHealth: